More than two decades after the idea was first proposed, Hong Kong's stock market may in 2012 finally adopt so-called scripless shares, abandoning physical certificates in favour of electronic recording of shareholdings.
Although the Hong Kong stock exchange is the world's seventh-largest by market capitalisation, the law still requires all companies to issue physical share certificates.
In Australia and on the mainland, all investors have their shareholdings in electronic records. Since 1996, Britain has allowed investors to opt for electronic records or physical share certificates.
In a third attempt to start a scripless market, the Securities and Futures Commission and Hong Kong Exchanges and Clearing yesterday jointly launched a consultation paper on the subject. It would allow investors to turn in their existing share certificates, creating electronic records in an account under their own names or the names of their brokers in the Central Clearing and Settlement System.
The proposal also allows investors to keep their share certificates. They could also opt for turning the electronic record back into physical shares at any time.
In the case of initial public offerings, investors could choose to receive physical share certificates or an electronic record.
This dual system would be in place for some years before any attempt would be made to abolish share certificates.
SFC executive director Keith Lui Kei-kwong said it was hard to predict when Hong Kong would abolish share certificates entirely since experience overseas showed some investors preferred holding certificates.
Australia turned all share certificates into electronic records in 1999, but there are still certificates in use in the United States and Britain. Lui said there were still nine million investors holding share certificates in Britain, 13 years after the move to go electronic.
Introducing the scripless market is the last major proposal of the Ian Hay Davison Report, which suggested a range of reforms for the local market in 1988.
The SFC had the first consultation on a scripless market in 2002, followed by an HKEx consultation in 2003. But both failed to proceed due to the lack of support from investors and brokers.
'This may be the right time to propose the scripless market as many more investors are trading through the internet than 2003,' Lui said. 'The proposal is more environmentally friendly as it would reduce the number of trees needed to be cut to produce the share certificates.'
The consultation will last three months. A more detailed plan for a consultation will then be prepared for a change in law.